USDA to revise cost of production data

(Editor’s note: This column has been reposted to correct an error in an earlier version.)

The Agriculture Department’s latest report of dairy product commercial disappearance is raising some eyebrows. Ditto on its milk cost of production data so we have elected not to report it. USDA Economic Research Service economist William McBride, told DairyBusiness Update editor Dave Natzke that they will update the cost of production data and issue revised October estimates next month.

Third Quarter commercial dairy product disappearance was strong, according to data compiled by Jerry Dryer, editor of the Dairy and Food Market Analyst. Dryer said USDA’s data was confused at best but his findings are “supportive of current milk prices.”

American cheese was up more than 5 percent, he said, other cheese was up almost 4 percent, and butter was up about 8 percent. The nonfat dry milk and skim milk powder side of the business was up 14 percent, which he attributes to exports, prompting the question, what will exports look like next year?

Dryer also views the October Milk Production report as bullish with output only being up around 1 percent. Compare that with commercial disappearance for all milk and dairy products being up 3 1/2 percent in the Third Quarter, he said “We’re burning through product faster than we’re producing it.”

He adds that the October Cold Storage report “confirmed that in spades for us.” There were big pull-downs, not just in October, according to Dryer, but, looking at June to October and, when we get November data, he believes we will see a huge pull-downs June through November, late summer and all of fall, which is “very supportive of milk prices,” he concluded.

Record-setting drawdown

Speaking of the Agriculture Department’s Cold Storage report, data show Oct. 31 butter stocks at 173.8 million pounds, down a whopping 59.2 million pounds, or 25 percent, from September but 28.7 million pounds or 20 percent above October 2012. The Nov. 22 Daily Dairy Report (DDR) pointed out that this is the largest September to October drawdown on record and the largest monthly drawdown in at least a decade.

American type cheese, at 629.2 million pounds, was down 31.8 million pounds or 5 percent below September but 18.3 million pounds or 3 percent above a year ago. The total cheese inventory amounted to 1.02 billion pounds, down 46 million pounds or 4 percent from September but 28.6 million pounds or 3 percent above a year ago. The DDR said this was the highest September to October drawdown in years, and much larger than the average reduction of 18.2 million pounds over the past five years.

High Ground Dairy’s Eric Meyer wrote in his Nov. 25 analysis: “Some may view the strong monthly drawdowns as bullish to the market but we do not see the October Cold Storage having a dramatic impact on current spot prices of either cheese or butter. While we may see a kneejerk reaction or support in sympathy to a strong nonfat dry milk market, we anticipate spot cheese and butter prices rolling back in December as holiday demand wanes and excess milk looks for a home.”

Cheese prices increase

Cash cheese prices strengthened in the shortened Thanksgiving holiday week. The blocks closed Wednesday at $1.88 per pound, up 4 1/2-cents on the week and 12 cents above that week a year ago when they lost 6 1/2 cents. Thanksgiving was a week earlier last year. The barrels closed Wednesday at $1.7775, up 2 1/4-cents on the week and 6 1/2-cents above a year ago. Six cars of block traded hands on the week and eight of barrel.

Brian Gould, a professor in the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison, points out that the average spread in 2013 was 4.5¢ with a range from -5.75¢ to 23¢. He also reminds us that barrel cheddar is used in further manufacturing such as in processed cheese and cheese spreads.

Stored cheese inventories are being used to meet current orders, according to USDA’s Dairy Market News (DMN). Cheese production was mostly steady with recent weeks. Some plants were running at less than capacity due to seasonally low milk output. Increasing component levels were helping to increase yields.

Both retail and export demand are good with cheese plants moving product as quickly as possible to fill orders. The Foreign Ag Service reports exports of cheese for January-September 2013 totaled 507 million pounds, up 14 percent from the same period a year ago.

Cash butter reversed four weeks of gain, closing Friday at $1.65, down 3 cents on the week but was still a nickel above a year ago when it dropped 9 cents. Five cars were sold this week.

Cream was the biggest topic in the butter industry the week before Thanksgiving, according to DMN, as supplies were tight across the U.S., resulting in churn operators paying top dollar for cream. Some butter manufacturers in the Northeast were selling cream with the plan to produce more butter over the holidays when cream was more readily available. Butter makers in the West were looking for additional cream to meet export demand.

Meyer said the U.S. butter market’s 2013 story “continues to unravel.” “After making unnecessary highs in the early spring due to the New Zealand drought, poor domestic demand sent stocks soaring and summer prices down to levels not seen since 2009.

And while the initial thought was that strong demand for skim solids for nonfat dry milk, skim milk powder and yogurt production would send more cream to the churn, butter production has only managed to grow 0.4 percent between April and September 2013 versus 2012.”

Meyer charges that “Cheap butter here in the states has brought not only retailers back into the mix but global buyers have made their presence felt. Butter export volumes between June to September 2013 were more than three times the amount from the same period last year.”

Cash Grade A nonfat dry milk (NDM) closed Friday at $2 per pound, up 11/2 cents on the week. Extra Grade held at $1.9750.

NDM supplies are tight and pricey throughout the country, making it difficult for buyers to secure product, reports DMN. Domestic demand is trailing the very good NDM/Skim milk powder export interest. Many U.S. manufacturers are taking advantage of the strong international demand in skim milk powder, leaving NDM production at reduced rates.

U.S. milk production is mixed, according to USDA, with increasing rates in the Midwest, the East, California, and Arizona while flat or reduced in the Pacific Northwest, Utah, Idaho, and New Mexico. Supplies are tight as processors are focusing on meeting and fulfilling strong holiday bottling demand.

Cooperatives Working Together (CWT) accepted 36 requests for export assistance this week to sell 9.76 million pounds of cheese and 3 million pounds of butter to customers in Asia, Central America, Europe, the Middle East and North Africa. The product will be delivered through May 2014 and raised CWT’s 2013 cheese exports to 121.78 million pounds plus 87.92 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 38 countries on six continents.

NMPF touts farm bill plan

The National Milk Producers Federation this week touted a recent analysis by the Congressional Research Service (CRS) of the competing House and Senate farm bills which shows that the Senate’s dairy program costs less than the House version as negotiations continue in the congressional farm bill committee.

The House farm bill’s dairy title is projected to cost $418 million above the baseline, according to the CRS report released in October, while the Senate dairy program costs $302 million more over the next 10 years.

Incoming NMPF President and CEO Jim Mulhern said that the CRS report, the first to compare the two competing farm bill versions that conferees are attempting to reconcile, “buttresses the point that NMPF has been making about the need to couple margin insurance with a market stabilization program, as the Senate bill does, to achieve cost controls.”

“While even this analysis seriously underestimates what we and other independent analysts believe would be the real cost of the badly-flawed House approach, the CRS report demonstrates that the Senate plan is the most fiscally responsible program,” Mulhern said. “Without the market stabilization program to both reduce the duration of low margin conditions, and reduce government outlays for insurance payments, the House plan would be a budget-buster and one that we urge the conferees to reject, in favor of the Senate’s more prudent approach.”

Mulhern also said that the market stabilization element will not adversely impact consumer prices for dairy products, contrary to bogus claims made by those opposing the Senate’s Dairy Security Act.

“If the market stabilization program ever kicked in, and that’s a big if, it would only be when farm milk prices are in the tank. The Senate plan would simply put a floor under the price to keep it from falling further and would not have a noticeable impact on the cost of milk to consumers. Nor would it affect the milk bought through government food assistance programs,” he said. “The purpose of market stabilization is to keep farmers’ milk prices from staying too low, for too long a period. Any suggestion that it will spike retail prices to abnormally high levels is a deceitful and deliberate misinterpretation of the studies done on the impact of the DSA.”

The Wisconsin-based Dairy Business Association (DBA) sees things differently and gave a thumbs up to House Budget Committee chairman Rep. Paul Ryan, R-Wis., for publicly stating his opposition to dairy supply management.

“As an organization representing dairy farmers and other dairy interests in Wisconsin, we appreciate that Rep. Ryan recognizes that supply management would hurt dairy exports, jeopardize industry growth and raise prices for consumers,” the DBA stated.

“We have been consistently vocal in our opposition to the Dairy Market Stabilization Program (DMSP), which was included in the Farm Bill as passed by the Senate in June. The Senate bill would require dairy farmers enrolled in a margin insurance program to periodically limit the amount of milk their farms can sell. Dairy farmers who take advantage of the margin insurance should not be required to participate in a program that would have the government directly interfere in the milk supply.”